Five positives for home buyers in 2016

Bonus, Promotions, Increments! New Financial Year will (hopefully!) lead to more income (read "cash flow") to most. More income means more planning regarding investment!

Realty investment, for decades and generations, has been one of the favourite modes of deploying the income. Be it for self-consumption or for generating additional income, buying residential apartments (homes) has always been on the top three investment to-dos for most individuals.

Over the last couple of years, there has been tremendous focus on “smart cities”, "affordable housing" and "housing for all by 2022". Ever since the Prime Minister, Narendra Modi made public his desire to provide housing for all, there have been expectations that the government will introduce measures to motivate individuals to re-start buying homes. Especially those who are in virgin territory waiting to sign their first immovable property purchase agreement.

A journey of thousand miles begins with a single step. Our finance minister has also been taking mini 'fiscal' steps to contribute to the much needed motivation. He has been introducing tax reliefs over the last two years which has resulted in individuals looking at home buying with more positivity.

A quick look at the key proposals:

Tax break on interest paid on housing loans is currently available up to a maximum of INR 2 lacs. For the first time home buyer, the limit is enhanced by a whopping 25% to INR 2.5 lacs. The enhancement comes with additional riders such a value of loan and residential apartment to be below INR 35 lacs and INR 50 lacs respectively. Both values seem to be pretty reasonable having regard to the target audience.

Affordable Housing developers have been requesting for tax holiday to make such housing projects more lucrative. Finally, after a couple of years of deliberation, a 33 month window (starting June 2016) is now made available to initiate affordable housing projects which would be eligible to claim tax holiday (*of-course conditions apply!). Government has given up their share and if, those in the chain also pass on this fiscal benefit to the end customer, a downward price impact could be expected. Something that a home buyer has been looking out for!

Over the last few years, home buyers at the time of evaluating property options, have been asking the developers to quote purchase price including service tax. This obviously demonstrates the contribution of the service tax element in the price. Given the specific service tax exemption, some home buyers now will no longer be required to understand the complex calculations of price inclusive of service tax. It goes without saying that this service tax exemption will be limited to “affordable housing” projects approved by either of the Governments and the apartment size is less than 60 square metres. Looks like home buyers would be on the look-out for affordable housing projects.

‘Land records’ are still maintained in the traditional way which has led to huge litigations on title related matters. Some of the old physical records are extremely difficult to access and an average home buyer has to pretty much read (if not understand!) the recitals in the property purchase agreement and satisfy himself on the title or otherwise. Digitalisation of land records programme has been revamped and will now be implemented as a Central sector scheme. Not something to get excited about in the short term, but the long term impact of this would lead to home buyers having much more digital information on which to base their decision.

Financial sector reforms was one of the nine pillars of the ‘Transform India’ agenda with ‘Transparency’ being the key ingredient of this pillar. Real Estate (Regulation and Development) Bill, 2016 is a step towards making this sector “efficient” and “transparent”. From a home buyer’s perspective, this will reduce the uncertainties attached to under construction purchase.

Transform India was the theme for this year’s Budget presentation and the cumulative impact of the proposals should certainly provide the impetus for transformation. Real Estate is a key sector of our eco system and a transformation in this sector should have a multiplier effect on the overall economy. A lot will depend upon how the aforesaid proposals are implemented and whether or not the proposals are good enough to motivate the home buyers to take the most important step – “purchase”.

(The views expressed above are personal and may not necessarily reflect views of PwC India)

DISCLAIMER: The views expressed are solely of the author and ETRealty.com does not necessarily subscribe to it. ETRealty.com shall not be responsible for any damage caused to any person/organisation directly or indirectly.